A Consumer Price Index (CPI) is a statistical measure of an average price change of consumer goods over a specified period of time. In the United States, the Department of Labor's Bureau of Labor and Statistics (BLS) publishes CPI data for the U.S. in the form of the following three main CPI series: the CPI for All Urban Consumers (CPI-U), the Chained CPI for All Urban Consumers (C-CPI-U), and the CPI for Urban Wage Earners and Clerical Workers (CPI-W). The consumer prices used to determine all three CPI series are the same. However, different weights and/or formulas are used to combine the consumer prices to determine the different CPI series.
The BLS determines each CPI using a two stage calculation. The first stage involves dividing the universe of all goods and services to be included in the CPI into 211 categories, or “item strata,” across 38 geographic areas, or “index areas.” By combining the price changes of the items included in each item stratum, the average price differential for each of the 211 item strata across each of the 38 geographic areas is then calculated, resulting in 211×38=8018 “basic indexes.” The second stage of CPI calculation involves weighting and combining the basic indexes to determine the particular CPI series. The weights and/or formula used to combine the basic indexes are determined according to the series and geographic area for the specific CPI to be calculated.
In the U.S., the CPI data published by the BLS can impact the economy, as well as individual income. For example, federal spending and revenues in certain areas are directly affected by the BLS CPI. Cost of living increases included in many individual employment contracts are also tied to the BLS CPI. Thus, any error or bias of the BLS CPI can be detrimental on many different levels.